Yields on Nigerian Treasury Bills are expected to drop further as the Federal Government plans to redeem its maturing portfolio this first quarter, BusinessDay learnt on Wednesday.
Nigerian short-term Treasury bill yields fell 50 basis points on Tuesday following the expectations by investors that the government will sell less debt at auction in the second quarter after raising $2.5 billion from a Eurobond.
“We expect the next redemption to be this quarter because the proceeds from the Eurobond it raised last week will be used to redeem Treasury Bills on maturity,” Ayodeji Ebo, managing director, Afrinvest Securities limited told BusinessDay by phone.
Finance Minister, Kemi Adeosun said earlier that the country will redeem N762.5 billion naira ($2.5 billion) worth of treasury bills to reduce the government’s costs.
Nigeria has a treasury bill portfolio of N2.7 trillion and paid off N198 billion worth of bills in December, leading to rates dropping by around 300 basis points.
The short-dated bill with 60 days to maturity, traded at 14.3 percent on Tuesday, down from 14.8 percent in the previous session.
The medium-term bills with 150-days to maturity, traded at 14.7 percent on Tuesday, down from 14.9 percent previously. The longer-dated notes were unchanged at 13.45 percent, traders said.
“We expect the treasury bill rate to drop marginally from the current levels as inflation rate continues to drop”, Ayodele Akinwunmi, head of Research, FSDH Merchant Bank Limited said.
The implication he said is that it will continue to encourage the issuance of Commercial Papers in the market by companies to fund short-term obligations and perhaps lead to an increase in the issuance of corporate bonds to fund long term projects since the interest rates of Treasury Bills have dropped.
“It will also encourage lending to the economy since we expect more companies to continue to access credits at cheaper rates,” Akinwunmi said in an emailed response to BusinessDay.
The Federal Government last week disclosed that it had priced its offering of $2.5bn aggregate principal amount of dual series notes under its Global Medium Term Note Programme.
The Notes comprise of a US$1.25 billion 12-year series and a US$1.25 billion 20-year series. The 12-year series will bear interest at a rate of 7.143 percent, while the 20-year series will bear interest at a rate of 7.696 percent, and, in each case, will be repayable with a bullet repayment of the principal on maturity.
The Central Bank of Nigeria (CBN), however, has been mopping up liquidity through open market bills to keep rates above inflation. The CBN’s last OMO auction was conducted on February 15, 2017, where it offered a total of N100 billion for 266 days tenor at 14.4 percent and 16.0884 true yield.
Investors are waiting for the debt office to announce which bills it intends to pay off and a reduction in auction volumes for second quarter, which could spur buying, traders said.
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